Recently, I wrote that California Senator Monique Limón had introduced legislation, SB 1186, that would allow the Secretary of State to cancel the articles of incorporation or the filing of a statement and designation by a foreign corporation upon reasonable belief of any of the following:
- The entity was created for an unlawful, false, or fraudulent purpose.
- The entity was created to promote or conduct an illegitimate object or purpose.
- The entity was created in bad faith.
- The entity was created for the purpose of harassing or defrauding a person or entity.
The bill calls to mind the Supreme Court's ruling in Matal v. Tam, 137 S. Ct. 1744 (2017). In that case, the lead singer in the group "The Slants" sought register the group's name as a trademark. The Patent and Trademark Office (PTO) refused to register the mark based the "disparagement clause" which forbids the registration of trademarks that may "disparage... or bring ... into contemp[t] or disrepute" any "persons, living or dead." 15 U.S.C. § 1052(a). The Supreme Court held that the disparagement clause violates the Free Speech Clause of the First Amendment because offends a bedrock First Amendment principle - the government cannot ban speech on the basis it may cause offense.
SB 1168 does not allow the Secretary of State to cancel "offensive" business entities based on their names, but it does allow cancellation of entities that were created to promote or conduct an "illegitimate" object or purpose. This standard invites the Secretary of State to cancel entities based on their speech. The danger of constitutional violations is compounded by the vagueness of the term "illegitimate". Because the bill separately allows cancellation for an "unlawful" and "illegitimate" purposes, it would appear that illegitimate purposes encompass more than unlawful purposes. Suppose a corporation is formed to promote the expanded use of fossil fuels, could a Secretary of State concerned with the effects of greenhouse gas emissions cancel the corporation on the basis that the corporation was formed to promote an "illegitimate" purpose?
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